Wednesday Options Recap

Sentiment

Stocks fell early Wednesday and never recovered. The catalyst for the morning slide was a monthly retail sales report that showed a decline of .4 percent in April, which was worse than the .1 percent decline economists had predicted. Excluding autos, retail sales fell .5 percent last month. Economists had predicted a .1 percent increase.

Meanwhile, concerns about problems facing the automakers and the financials continue to weigh on investor sentiment. General Motors (GM) is holding modest gains late Wednesday, but after falling more than 20 percent Tuesday, the stock came under pressure and hit the $1 "psych" level early Wednesday. Meanwhile, Ford Motor (F) is down 22 percent this week after announcing plans to sell 300 million shares at $4.75.

The banks are back under pressure as well. Although the "stress tests" are no longer getting a lot of attention, investors are worried that, with many banks now tapping the equity market for capital, future shareholder value and earnings in the industry will see substantial dilution.

BofA (BAC) is down 9.5 percent and the worst performer in the Dow Jones Industrial Average. Many of the cyclical names--like Alcoa (AA), United Tech (UTX), and 3M (MMM)--are seeing relative weakness as well. The Dow is down 185 points heading into the final forty-minutes of trading. The CBOE Volatility Index (.VIX) gained 1.85 to 33.65. Approximately 8.3 million calls and 7.3 million puts have traded across the exchanges.

Bullish Flow

Ford Motor (F) is down 16 cents to $4.85 and 171K options contracts traded on the automaker today, or 2X the average daily. The stock hit a low of $4.71 today and is down 22.3 percent this week after announcing plans to sell 300 million shares at $4.75. In the options market, the May 5 straddle is busy, with 30K May 5 calls and 25K May 5 puts traded. Interestingly, the top trades of the day seems to reflect a bullish view on the automaker after one strategist bought the Ford June 5 - 6 ratio spread 7500X for 2 cents.

Nordstrom (JWN) is down $1.29 to $20.71, but sentiment seems somewhat bullish heading into earnings (tomorrow, after market). May 21 and May 22 calls are the most actives, with about 8,500 traded and roughly two-thirds hitting ask-side of the bid-ask spread. Looks like buyers dominating the action and lifting implied volatility to almost 80, from about 77 the day before.

Bearish Flow

Whole Foods (WFMI) shares are down and implied volatility is up ahead of earnings due out after the closing bell. WFMI was recently down $1 to $21.07 and options volume is running 4X the average daily. June 20, May 20, and May 21 puts are the most actives, as players brace for the news. 21K puts and 12K calls traded total. Implied volatility is up to 77, from about 68 the day before.

MGM is off $1.62 to $10.78 and puts are actively traded after the casino-operator announced an 81 mln share offering. MGM also announced a $1.5 bln private placement of senior secured notes. Dilution concerns and general market weakness are weighing on shares and about 10K Jan 2011 puts at the 2.5 strike already traded. 20K puts and about 4000 calls traded total.

Implied Volatility Movers

Medicines Company (MDCO) shares sank after the company announced that it has discontinued phase 3 trials of its Cangrelor treatment. Shares tumbled 36.6 percent to $7.06 and implied volatility spiked to 90, up from about 70 the day before.

Implied volatility is also higher in FedEx (FDX), Advanced Micro (AMD), and Costco (COST). Meanwhile, implied volatility is lower in Liz Claiborne (LIZ), Macy's (M), and Monsanto (MON).